ECONOMIC 
BENEFITS  of 

PROHIBITION 

PROFESSOR  IRVING  FISHER 

Yate  University 

THE  AMERICAN  ISSUE  PRESS,  WESTERVILLE,  OHIO 

ECONOMIC  BENEFITS  OF  PROHIBITION 

By  PROFESSOR  IRVING  FISHER,  Yah  UniversHy 

(Editor’s  Note  : The  following  is  the  statement  of  Professor 
Fisher,  world  known  economist,  made  before  the  United  States 
Senate  Judiciary  Subcommittee  on  Prohibition,  April,  1926.) 

Since  scientific  research  has  shown  that  alcoholic  bev- 
erages slow  down  the  human  machine,  and  since  the  hu- 
man machine  is  the  most  important  machine  in  industry, 
we  should  expect  the  use  of  alcoholic  beverages  to  slow 
down  industry,  and  we  should  expect  prohibition,  if  en- 
forced, to  speed  up  industry.  Experiments  show  that  two 
to  four  glasses  of  beer  a day  will  impair  the  work  done 
in  typesetting  by  8 per  cent,  increase  the  time  required 
for  heavy  mountain  marches  22  per  cent,  and  impair  ac- 
curacy of  shooting  under  severe  army  tests  30  per  cent. 

Joss,  in  careful  experiments  made  with  students,  found 
that  one  to  two  glasses  of  beer  reduced  the  capacity  of 
students  to  do  mental  arithmetic  12  per  cent. 

Assuming  the  total  alcohol  used  in  the  United  States 
to  be  consumed  uniformly  among  its  families  and  assum- 
ming,  as  in  the  typesetting  experiment  (the  minimum  of 
the  above  figures),  that  each  daily  glass  of  beer  reduced 
productivity  2 to  4 per  cent,  it  follows  that  the  produc- 
tivity of  labor  would  be  increased  from  10  to  20  per  cent 
by  effective  prohibition.  But  if,  as  is  the  fact,  the  con- 
sumption is  unequally  distributed,  the  impairment  will,  of 
course,  be  greater.  . . . 

More  direct  evidence  is  available.  In  Russia,  textile 
mills  increased  productivity  8 per  cent  after  vodka  pro- 
hibition— this  in  spite  of  the  fact  that  in  textile  mills  the 
pace  is  almost  rigidly  fixed  by  machinery.  The  Russian 
Minister  of  Finance  reported  that,  in  mining  districts, 
the  increased  productivity  had  been  30  per  cent.  Ob- 
servers in  Finland  found  in  mining  districts  an  increase 
of  50  per  cent  after  prohibition. 

All  of  us  know  that  industrial  efficiency  was  one  of  the 
chief  reasons  for  prohibition.  Frederick  W.  Taylor,  the 

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chief  apostle  of  scientific  management,  favored  prohibi- 
tion and  predicted  its  coming  on  just  these  grounds. 

A Connecticut  manufacturer,  who  made  a careful  reck- 
oning before  prohibition  as  to  what  drunkenness  among 
his  employees  cost  him,  thought  that  the  elimination  of 
drunkenness  alone,  without  the  elimination  of  moderate 
drinking,  would  increase  his  factory  output  over  20  per 
cent.  In  view  of  all  these  and  other  facts,  it  seems  safe 
to  conclude  that  labor  productivity  should  be  increased 
by  at  least  10  per  cent  through  prohibition. 

Wages  Increased 

Such  an  increase  in  productivity  ought  to  find  expres- 
sion in  increased  wages  and  profits,  especially  in  terri- 
tory that  was  wet  before  prohibition.  Now  let  us  see 
how  this  has  worked  out  in  actual  fact.  The  national  in- 
come in  1919,  the  year  before  prohibition  took  effect,  was 
estimated  at  $66,000,000,000  by  the  National  Bureau  of 
Economic  Research,  our  chief  authority  for  such  statis- 
tics. About  three-fourths  of  this  consisted  of  wages  and 
profits,  or  $50,000,000,000.  Let  us  assume  that  the  re- 
mainder (interest,  rent,  etc.)  was  not  increased  through 
prohibition.  Most  of  the  $50,000,000,000  was  produced  in 
wet  territory  where  the  large  cities  and  industries  are. 
A rough  study  shows  that  two-thirds  of  our  national 
wealth,  three-fourths  of  our  corporate  incomes,  and  four- 
fifths  of  our  personal  incomes  subject  to  the  income  tax, 
were  in  this  wet  territory.  It  follows  that  at  least  two- 
thirds  of  the  nation’s  wages  and  profits  (and  perhaps 
even  three-fourths)  were  produced  in  wet  area,  or  over 
$33,000,000,000.  Applying  the  minimum  estimate  of  10 
per  cent,  we  calculate  that  AT  LEAST  $3,300,000,000 
should  be  added  to  our  national  production  by  prohibi- 
tion— or  would  be  added  if  prohibition  were  well  en- 
forced— simply  through  the  release  of  human  energy  and 
skill. 

This  $3,300,000  is  5 per  cent  of  the  total  income  of  the 
whole  United  States  in  1919.  It  is  in  addition  to  $2,000,- 
000,000  that  were  saved  merely  by  transferring  our  en- 
ergies from  alcohol  production  to  something  possessing 

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true  value.  In  fact,  the  $2,000,000,000  loss  from  alcohol 
production  would  have  been  $3,000,000,000  or  $4,000,000,- 
000  today  were  it  not  for  prohibition,  or  let  us  say  (in 
accordance  with  various  other  estimates)  another  5 per 
cent  of  our  total  income. 

In  a nutshell,  then,  prohibition  saves  5 per  cent  that 
used  to  be  wasted  out  of  our  incomes,  and  adds  another 
5 per  cent  into  the  bargain. 

Prohibition  Worth  Six  Billions 

This  double  gain,  through  the  transfer  of  energy  and 
the  increase  of  energy,  is  over  $6,000,000,000— without 
counting  any  savings  in  the  cost  of  jails,  almshouses, 
asylums,  etc.,  or  any  economic  savings  from  reducing  the 
death  rate. 

Turning  now  to  experience  since  prohibition,  we  ask. 
Is  there  any  sign  of  such  an  increase  in  national  income? 
There  is! 

Vv’e  find  that  the  “real”  wages  of  labor  per  hour,  after 
making  all  due  allowance  for  changes  in  the  purchasing 
power  of  the  dollar,  increased  36  per  cent  between  July, 
1914,  and  January,  1925;  also  that  most  of  this  sudden 
improvement  came  immediately  after  prohibition. 

Between  1892  and  1919,  inclusive,  “real”  wages  re- 
mained almost  stationary.  The  fluctuations  never  ex- 
ceeded 4 per  cent  above  or  below  the  average  level  for 
those  twenty-eight  years  (excepting  only  once,  in  1897, 
when  it  was  nearly  7 per  cent  above).  Likewise,  be- 
ginning with  1920,  at  a higher  level,  real  wages  have 
remained  almost  as  uniform.  This  new  level  is  28  per 
cent  above  the  old  level. 

To  repeat  this  striking  fact  in  other  words:  With  the 
coming  of  prohibition,  wages  suddenly  rose  from  their 
old  level,  which  they  had  kept  without  much  change  for 
over  a quarter  of  a century,  to  a new  level  where  it  now 
is,  a third  higher  than  the  old. 

Profits  have  also  risen,  as  has  the  total  income  of  the 
country,  but  the  figures  for  profits  are  not  so  nearly  up 
to  date.  All  of  us,  however,  know  of  our  present  abound- 

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ing  prosperity.  This  is  one  reason  for  our  unprecedented 
stock  market. 

Savings  Mount 

Furthermore,  the  statistics  of  vartous  types  of  personal 
savings,  such  as  the  assets  of  building  and  loan  associa- 
tions or  the  assets  of  life  insurance  companies,  sho-w  a 
substantially  greater  rate  of  growth  during  the  period 
1920-25  than  during  the  period  1915-20.  This  increased 
rate  of  growth  is  particularly  marked  if  those  assets  are 
expressed  in  terms  of  purchasing  power,  that  is  in  “1913 
dollars.” 

The  foregoing  facts  fit  perfectly  with  the  theory  that 
prohibition  should  increase  wages  and  profits  by  at  least 
5 per  cent.  Indeed,  they  leave  a margin  six  times  that 
figure  to  take  account  of  other  causes,  as  well  as  of  the 
fact  that  this  5 per  cent  is  a safe  minimum  and  also  of 
the  fact  that  prohibition  is  not  fully  enforced.  Person- 
ally I am  Inclined  to  believe  that  prohibition  has  saved 
and  added  much  more  than  the  $6,000,000,000  that  I 
have  estimated  as  a safe  minimum.  But  it  is  always 
better  to  keep  on  the  safe  side,  and  to  mention  no  higher 
figure  specifically;  for  even  a paltry  $6,000,000,000  a year 
is  well  worth  saving! 

This  is  one  reason  why  Gary,  Leland  and  other  indus- 
trialists believe  in  prohibition.  If  prohibition  enforce- 
ment cost  us  even  $1,000,000,000  a year,  it  would  be  well 
worth  while  purely  as  an  economic  investment. 

These  conclusions  are  confirmed  by  Mr.  Hoover  who, 
in  a speech  made  before  the  United  States  Chamber  of 
Commerce,  said: 

■‘Exhaustive  study  from  many  angles  of  produc- 
tion over  average  periods  ten  years  apart,  before 
and  since  the  War,  would  indicate  that  while  our 
productivity  should  have  increased  about  15  per  cent, 
due  to  the  increase  in  population,  yet  the  actual  in- 
crease has  been  from  25  to  30  per  cent,  indicating  an 
increase  of  efficiency  of  somewhere  from  10  to  15 
per  cent.” 

Mr.  Hoover  also  said: 


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“In  addition  to  elimination  of  waste,  we  have  had 
the  benefit  of  notable  advances  in  science,  improve- 
ment in  methods  of  management,  and  prohibition.” 
Professor  Carver  of  Harvard  says: 

“Anyone  who  attempts  to  explain  all  these  amaz- 
ing signs  of  prosperity  among  our  working  classes 
without  mentioning  prohibition  seems  to  me  as  ex- 
treme as  the  one  who  would  explain  them  on  the 
ground  of  prohibition  alone.  I cannot  explain  them 
except  by  bringing  in  prohibition  as  a contributing 
factor. 

You  heard  labor  leaders  denounce  prohibition  last  week 
because  they  resented  its  interference  with  “personal  lib- 
erty.” But  I noticed  they  did  not  say  that  it  increased 
poverty.  Listen  to  what  the  late  Warren  S.  Stone,  Grand 
Chief  of  the  Brotherhood  of  Locomotive  Engineers,  has 
to  say  on  the  subject: 

“There  are  some  people  who  labor  under  the  de- 
lusion that  they  are  going  to  have  the  prohibition 
law  modified  or  abolished.  Someone  should  wake 
them  from  their  Rip  Van  Winkle  sleep.  I wish  they 
could  go  with  me  for  thirty  days  as  I travel  over 
this  broad  land  and  see  the  homes  being  erected 
everywhere,  note  the  accounts  being  opened  in 
savings  banks,  see  the  families  out  together  in 
parks,  recreation  and  community  centers,  children 
well-fed,  with  shoes  to  wear,  and  warm  clothing, 
going  to  school;  see  prosperity,  happiness  and  sun- 
shine where  formerly  there  were  only  squalor  and 
misery.  All  this  as  a result  of  prohibition.  We  are 
not  going  back  to  the  old  condition  of  things  with 
their  misery,  want  and  poverty — never  again.  PRO- 
HIBITION HAS  COME  TO  STAYl 

When  prohibition  came,  we  were  told  that  to  destroy 
the  saloon  was  to  destroy  that  much  business,  that  sa- 
loons help  “make  money  circulate.”  This  is  what  in  the 
classroom  we  call  “economic  nonsense.”  Today  I think 
such  talk  seems  nonsensical  to  almost  everybody.  No 

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one  has  the  hardihood  to  revive  such  statements,  in  view 
of  our  prosperity  since  prohibition. 

But  we  do  hear  it  said  that  prohibition  is  costly  to 
administer  and  that  it  deprives  us  of  a source  of  revenue 
for  taxes.  This  also  is  “economic  nonsense,”  since  the 
real  source  of  taxation  is  income.  Not  only  income 
taxes,  but  all  taxes,  are  paid  out  of  income.  Prohibition 
has  added  $6,000,000,000  a year  to  this  stream  of  income, 
the  source  of  all  taxes.  It  is,  therefore,  penny-wise  and 
pound-foolish  to  argue  that  prohibition  destroys  revenue. 
It  simply  requires  a transfer  of  taxes  from  alcoholic  bev- 
erages to  non-alcoholic  beverages,  and  to  the  other  pro- 
ductions to  which  our  energies  have  been  transferred. 

Liquor  Traffic  a Parasite 

The  simple  truth  is,  prohibition  has  simply  replaced  a 
parasitic  industry  by  constructive  industries.  Breweries 
and  saloons  have  given  place  to  something  more  valu- 
able. A survey  made  by  Robert  Corradini,  of  the  World 
League  Against  Alcoholism,  of  conditions  in  the  Bow- 
ery, formerly  one  of  the  densest  saloon  districts  of  New 
York  City,  showed  that  saloons  have  been  replaced  by 
restaurants,  clothing  establishments,  groceries,  candy 
shops,  shoe  stores,  hardware  stores,  jewelry  shops, 
banks,  etc.  The  value  of  the  land  on  these  sites  has 
not  fallen  as  was  predicted,  but  in  most  cases  risen. 

Even  Milwaukee,  the  city  that  beer  made  famous,  has 
been  improved  industrially  through  prohibition.  This  I 
have  found  to  be  the  verdict  of  the  best  qualified  judges. 

Turning  the  picture  around,  and,  just  as  prohibition 
increases  prosperity,  it  decreases  poverty.  A sub-com- 
mittee of  the  Committee  of  Fifty  for  the  investigation  of 
the  liquor  problem  published,  in  1899,  a volume  on  the 
economic  aspects  of  the  problem.  The  investigation 
covered  a period  of  about  three  years  and  was  carried 
on  under  the  general  direction  of  my  colleague,  Prof. 
Henry  W.  Farnam,  of  Yale  University.  The  general 
conclusions  of  this  investigation  were  that,  of  the  pov- 
erty which  came  under  the  notice  of  the  charity  organi- 
zation societies,  about  25  per  cent  could  be  traced,  di- 

7 


rectly  or  indirectly,  to  the  use  of  liquor;  of  the  poverty 
found  in  almshouses,  about  37  per  cent.  In  the  investi- 
gation of  crime  the  conclusion  was  reached  that  liquor 
was  a first  cause  in  31  per  cent  of  the  criminals  studied 
and  that  it  entered  in  as  a cause,  directly  or  indirectly,  in 
50  per  cent. 

Breadlines  Vanish 

Experience  with  prohibition  confirms  tTiese  conclu- 
sions. For  instance,  the  New  York  City  Bowery  Mis- 
sion statistical  report  shows  the  abandonment  of  the 
bread  line  and  the  reduction  in  other  evidences  of  pov- 
erty. Cora  F.  Stoddard,  in  an  article  on  “Prohibition 
and  Youth,”  published  in  1925,  reported  that  the  Boston 
Family  Welfare  Society,  toward  the  end  of  1923,  made 
an  intensive  study  of  forty-eight  families  that  had  been 
brought  to  the  society’s  attention  before  1919,  chiefly  for 
trouble  caused  by  intemperance.  Drinking  had  stopped 
entirely  in  thirteen  of  the  forty-eight  families  and  sixteen 
of  the  fifty-nine  drinking  members  had  become  abstainers. 
She  reported  that  in  almost  all  of  the  families  health  con- 
ditions had  improved,  affecting  the  working  ability  of  the 
men,  of  the  wives  and  of  the  growing  children,  and  put- 
ting all  the  families  virtually  on  a basis  of  self-support. 
Even  though  drinking  somewhat,  the  majority  of  the 
men  were  working  more  steadily  and  holding  their  jobs 
better. 

There  are  now  fewer  paupers  in  the  almshouses  of  the 
United  States  than  there  have  been  in  twenty  years.  The 
number  of  paupers  per  100,000  of  population  was  the 
lowest  in  the  history  of  the  country,  according  to  the 
last  United  States  census  of  almshouses. 


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